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Jurisdiction agreements: Preparing for change

The 1968 Brussels Convention will be replaced on 1st March, 2002 by a new EC Council Regulation (No 44/2001) for all EU member states except Denmark.

Karyl Nairn, Simmons and Simmons

The 1968 Brussels Convention will be replaced on 1st March,
2002 by a new EC Council Regulation (No 44/2001) for all
EU member states except Denmark (PLC, 2001, XII(2), 61).

The Brussels Convention sets out the rules for determining
which EU court will have jurisdiction over a dispute in relation
to a commercial contract and facilitates the recognition and
enforcement of judgments between member states. The Lugano
Convention applies between EU and European Free Trade Association
(EFTA) countries and Poland. Both Conventions recognise and give
effect to jurisdiction agreements in which the parties agree that
the courts of a particular member state will have jurisdiction to
determine any disputes arising under the contract. Most
companies' standard documents will contain jurisdiction
agreements drafted to comply with the Conventions.

From 1st March, 2002 there will therefore be three
jurisdiction regimes, running in parallel:

The Regulation (governing jurisdiction issues as between all
Brussels Convention member states except Denmark).

The Brussels Convention (governing jurisdiction issues as
between Denmark and all other Brussels Convention member
states).

The Lugano Convention (governing jurisdiction issues as
between Brussels Convention member states and EFTA countries and
Poland).

The Regulation will impact on those dealing with consumers
over the internet and also change, amongst other things, the
general provisions regarding jurisdiction. Contracts drafted now
should comply with the Regulation, since any dispute under those
contracts will, almost inevitably, be litigated after 1st March,
2002.

Non-exclusive jurisdiction

Under Article 17 of the Conventions, UK companies are free to
agree to the following types of jurisdiction agreements:

Exclusive jurisdiction agreements, by which the parties agree
that each party may only sue, and be sued, in the chosen
court.

Jurisdiction agreements "for the benefit" of one of the
parties by which one party (Party A) may only be sued in the
chosen court but may, as claimant, sue the other parties either
in the chosen court or in any other court having jurisdiction
under the Conventions.

A non-exclusive jurisdiction agreement is recognised under
English common law, by which each party may sue, and be sued, in
the chosen court, but has the option of taking (and in certain
cases, defending) proceedings in any other court having
jurisdiction over the case. However, there is doubt as to whether
such agreements are strictly permissible in the EU context since
the wording of Article 17 deems jurisdiction agreements to be
"exclusive". Article 23 of the Regulation replaces Article 17 of
the Conventions and:

Expressly allows for the conferral of jurisdiction to be
non-exclusive.

Deletes the wording in Article 17 which permitted agreements
"for the benefit" of one party only, presumably as such
agreements are now covered by the general provision allowing
non-exclusive agreements.

Agreements with Luxembourg parties

Luxembourg parties are protected, under Protocols to the
Conventions, from being sued in other member states in contract
cases where jurisdiction arises under Article 5(1) which provides
that a party may be sued outside its domicile in the courts for
the place of performance of the contractual obligation in
dispute. Also, Luxembourg parties are only bound by a
jurisdiction agreement where they have "expressly and
specifically" agreed to it. In practice, UK companies contracting
with Luxembourg parties, who wish to refer disputes to another EU
or an EFTA court, have included a separate signature line under
the jurisdiction clause or a separate execution clause for
Luxembourg parties.

Under Article 63 of the Regulation, a separate acknowledgement
or signature in relation to the jurisdiction agreement for the
Luxembourg party should no longer be necessary. "Protection" is
now confined to contracts for the provision of goods and
services, where the final place of delivery of the goods or
services is in Luxembourg. In such cases any agreement conferring
jurisdiction must, in order to be valid, be in, or evidenced in,
writing in accordance with Article 23(1)(a) of the Regulation.
Jurisdiction agreements arising by trade or practice between the
parties or in accordance with trade or commercial practice in a
particular industry will not bind a Luxembourg party. These
provisions are transitional and will be subject to further review
six years from 1st March, 2002. They do not apply to contracts
for the provision of financial services.

Changing boilerplate jurisdiction clauses

Most corporate standards will need to be compliant, not only
with the Regulation, but also with the Lugano Convention which
remains in force and with the Brussels Convention since Denmark
will not be bound by the Regulation. They also have to work for
transactions outside Europe.

To avoid the confusion of having different versions for
transactions in different countries, it is best to keep clauses
general, making it clear which country's courts have been chosen
and whether that choice is intended to be exclusive or
non-exclusive for one or more of the parties (see box "Sample
clauses").

The choice of court will be a matter for negotiation. Many UK
companies wish to nominate the English courts but this is not
always acceptable to the counterparty. It is worth noting that
the Regulation is intended to make it easier to enforce English
court judgments in other EU countries and vice versa, which may
affect corporate willingness to agree to EU courts outside the
home jurisdiction.

Sample clauses

These clauses are drafted on the basis that jurisdiction is
conferred on the English courts.

Exclusive for all parties

"In relation to any legal action or proceedings arising out
of or in connection with this Agreement ("Proceedings"), each of
the parties irrevocably submits to the exclusive jurisdiction of
the English courts and waives any objection to Proceedings in
such courts on the grounds of venue or on the grounds that
Proceedings have been brought in an inappropriate forum."

The waiver at the end of this clause (and subsequent clauses)
prevents a potential defendant raising forum non
conveniens arguments (seeking to stay proceedings in favour
of another, more appropriate court) after proceedings have been
commenced. The waiver is technically not needed where one of the
parties is domiciled in an EU/EFTA country or in Poland since the
concept of forum non conveniens is not allowed for under
the Conventions and the Regulation, but it is sensible to include
it in boilerplates for general use.

Non-exclusive for all parties (becoming exclusive once
proceedings commence)

"In relation to any legal action or proceedings arising out
of or in connection with this Agreement ("Proceedings"), each of
the parties irrevocably submits to the non-exclusive jurisdiction
of the English courts and waives any objection to Proceedings in
such courts on the grounds of venue or on the grounds that
Proceedings have been brought in an inappropriate forum."

This clause gives flexibility to all parties so that any party
(the claimant) considering where to sue can either sue in:

England (in which case the defendant may not object to the
English court's jurisdiction either because of the operation of
the Regulation or Conventions or because of the contractual
waiver (see above); or

A non-English court having jurisdiction under its own
rules.

This clause, therefore, gives a potential claimant some
tactical options, for example, suing in the chosen court
(England) or in the court of the defendant's domicile (for
example, France) and preserves the potential claimant's freedom
to choose until the issues in any dispute have become clear. This
clause is suitable for companies which are more likely to be the
claimant in any proceedings under the contract.

Non-exclusive for all parties (permitting parallel
proceedings in some cases)

"In relation to any legal action or proceedings arising out
of or in connection with this Agreement ("Proceedings"), each of
the parties irrevocably submits to the non-exclusive jurisdiction
of the English courts save that this submission shall not affect
the right of any party to take Proceedings in any other court or
courts having jurisdiction, to the extent permitted by
law."

This clause gives flexibility so that any party (the claimant)
considering where to sue can either sue in England or in a
non-English court having jurisdiction under its own rules. In
this clause, however, the defendant is not necessarily locked
into the claimant's choice of court and may, in certain
circumstances, be able to object to the claimant's choice of
forum and commence parallel proceedings elsewhere. However, such
a saving provision will not allow parallel proceedings in other
EU or EFTA/Polish courts since these are not permitted under the
Regulation or Conventions. These provisos therefore have little
effect in Europe. Parallel proceedings may, however, be issued
in, say, the US. In general, parallel proceedings are undesirable
because of the costs, inconvenience and the danger of conflicting
judgments.

Exclusive for all parties (as claimant) except Party A;
non-exclusive for Party A

"(1) Subject to clause (2) below, the parties irrevocably
agree that the English courts shall have exclusive jurisdiction
in relation to any legal action or proceedings arising out of or
in connection with this Agreement ("Proceedings").

(2) The parties agree that [clause (1) operates for the
benefit of [Party A] and accordingly] [Party A] shall be entitled
to take Proceedings in any other court or courts having
jurisdiction."

This clause gives flexibility to Party A, while restricting
the other parties. It leaves Party A's options open since it may
sue in England or elsewhere. Party A enjoys certainty as to where
it might be sued; but it retains flexibility as to where it might
sue. (Note, however, that A can only sue in a court which
otherwise has jurisdiction.) Conversely, the other parties can be
sued anywhere by A outside England but they may only sue Party A
in England. It follows that UK companies should only generally
agree to this type of clause if they are Party A, otherwise the
more even handed exclusive clause above would be more
appropriate.

The "benefit" wording in sub-clause (2) should be used for
contracts with Danish, EFTA or Polish parties for the time being
but otherwise can be omitted since it reflects the wording in
Article 17 of the Conventions which has been deleted from the
Regulation.

Note

A valid jurisdiction agreement overrides the general domicile
rule (namely that the defendant should be sued in his domicile)
as well as the optional jurisdiction rules in Articles 5 and 6 of
the Conventions/Regulation. However, a jurisdiction clause cannot
override the so-called "mandatory" jurisdiction rules. Mandatory
jurisdiction rules apply, for example, in proceedings involving
consumers, employees, insured persons, immovable property, the
validity of entries to public registers and the validity of
certain formal company matters such as dissolution. Therefore, if
the subject matter of a contract falls into any of these areas,
then the jurisdiction clause may have limited, or no, effect.

In most general commercial matters, an exclusive jurisdiction
clause will be advisable.

Article 17 and Article 23 of the Conventions and Regulation
respectively apply where the selected court is a EU, EFTA or
Polish court.

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